Feb. 16, 2014 - 11:23AM
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WASHINGTON — When then-Lt. Col. Kay Hensen awarded a National Guard recruiting contract worth at least $200 million to an Alabama marketing company in 2005, investigative records show, the Guard failed to get a legal review for the program, did not conduct any market research and neglected to negotiate the contractor’s fee.

Now Hensen works for the company, Docupak, and the Guard contract is at the heart of a national recruiting scandal.

Hensen, documents and interviews show, negotiated her new job while still working for the Guard. She sought and received a ruling from the Montana National Guard ethics officer who cleared her for the job with Docupak, an advertising firm that administered the Recruiting Assistance Program.

The program paid bonuses to soldiers and others for signing up recruits during the worst days of the wars in Iraq and Afghanistan. Investigators say that as much as $100 million in bonuses may have been fraudulently obtained and that thousands of soldiers may have been involved. Subsequent contracts with Docupak paid out $459 million in bonuses for signing up 150,000 recruits. The Army killed the program in 2012 after a scathing audit found fraud and patterns of abuse.

Hensen’s hiring was appropriate and “well vetted,” Docupak president Philip Crane told USA Today. But Sen. Claire McCaskill, D-Mo., called Hensen’s hiring “troubling” and vowed that her panel on contracting would continue to investigate the issue. Last week, a panel of the Senate Homeland Security and Governmental Affairs Committee that McCaskill chairs held a hearing on the program.

Dozens of Army investigators will need more than two years to sort through more 100,000 payments to determine if they were legitimate, Army officials told the committee. As of last month, the Army had 559 criminal investigations involving 1,219 people associated with the Recruiting Assistance Program. So far, 104 people have been convicted of crimes or disciplined by the Army. Moreover, the Army audit determined that the entire program was illegal because it lacked congressional authority to distribute such bonuses.

A typical scam involved a recruiter, soldier, or even high school guidance counselor, who claimed credit for persuading somebody to join the National Guard. They took online training from Docupak, supplied personal information from the recruit and had money electronically transferred to their account. One person being prosecuted allegedly defrauded the government for $274,500.

The Army audit blamed the fraud on poor internal controls, unscrupulous recruiters and “contracts that were not effectively written or overseen.” The contract met “almost none” of the federal acquisition requirements, according to a memo released by the Homeland Security and Governmental Affairs subcommittee on financial and contracting oversight staffers to senators.

The memo also faulted the Guard Bureau, where Hensen had awarded the contract, for failing to get a legal review that would have shown the payment of recruit-referral bonuses “is inherently a governmental function, and could not be outsourced to a contractor.”

It went on to fault the bureau for not conducting “any market research before contracting with DOCUPAK ... even though approximately 15 other companies” performed similar services.

Another key deficiency in the contract: “The National Guard Bureau failed to negotiate the contractor’s fee. Instead, the National Guard Bureau simply accepted DOCUPAK’s billing of $345 for each referral, which amounted to a 16.5 percent fee for the contractor ... As a result, the National Guard Bureau inappropriately paid $9,276,630 to the contractor.”

Hensen told the committee that she disagreed with Army auditors, saying the program was designed with adequate safeguards.

Crane, the company’s president, said he offered Hensen a job at his marketing firm because he was “very impressed with Kay’s knowledge of contracting and understanding the rules and regulations that govern it.” Her hiring was not a payoff for awarding the original contract, he said.

He waited more than two years after the contract was issued before contacting Hensen about working at Docupak to ensure there was no conflict-of-interest issue, Crane said.

Document and Packaging Brokers Inc. is based in Alabaster, Ala. It bills itself as a “full-service marketing firm with a proven history of success for our clients.” The company lists its top three services as sponsorships, exhibits and conference support.

Senate staffers, in their memo, said Docupak had limited responsibility for the recruiting scandal.

“While Army investigators have not identified any wrongdoing by DOCUPAK, they do not dispute that in many cases DOCUPAK should have been aware of contracting irregularities,” according to the memo.

Hensen did not respond to requests for comment.

In January 2008, Hensen received a memo from the Montana National Guard that cleared her to work for Docupak, saying there “is no legal objection to your employment at DOCUPAK.” Hensen had worked for the Montana National Guard since April 2006 in a position that “did not include any procurement or contracting interaction with DOCUPAK.” She left the National Guard and took the job with Docupak.

The relationship between Hensen and the contractor requires more scrutiny, McCaskill said in a statement.

“The revolving door between the military and contractors adds a troubling element to an already astounding level of problems with this program,” McCaskill said. “It’s clear that for years this effort was mismanaged at many levels and by many individuals, allowing potentially up to $100 million in fraud, and I intend to continue to investigate and ensure those responsible are held accountable.”

Jon Anderson, a Nation Guard Bureau spokesman, referred questions about the matter to Hensen. George Wright, an Army spokesman at the Pentagon, also declined to comment on the issue.